Herc Holdings Inc (HRI) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to Hertz' Global Holdings fourth quarter and year-end 2006 earnings conference call. [OPERATOR INSTRUCTIONS]

The company has asked me to read the following statement to you. Certain statements made on this call, including without limitation those concerning our liquidity and capital resources contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning Hertz Global Holdings' outlook, revenues, and results of operations, financial condition and liquidity, management forecasts, opportunities to increase productivity and profitability, implementation of productivity and efficiency initiatives, including job reductions, margins, anticipated pricing and growth, economies of scale, future economic performance, Hertz Global Holdings' ability to maintain profitability during adverse economic cycles and external events, management's plans, acquisitions, contingent liabilities, taxes, and refinancing of existing debt.

Because such statements involve risk and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These statements may be preceded by, followed, by, or include the words, "believes," "expects," "anticipates," "intends," "plans," "estimates," "projects," "seeks," "will," "may," "should," "forecasts," or similar expressions.

Forward-looking statements are not guarantees of performance, and by their nature are subject to inherent risks and uncertainties. Any forward-looking information related on this call speaks only as of the date hereof. Hertz Global Holdings undertakes no obligation to update or revise any forward-looking statements to reflect new information, changed circumstances, or unanticipated events. You are cautioned, therefore, that you should not rely on these forward-looking statements.

You should understand that the risks and uncertainties discussed in the Hertz Global Holdings S-1 and the periodic and current reports and other filings filed with or furnished to the Securities and Exchange Commission by Hertz Global Holdings and the Hertz Corporation, including those factors discussed under the heading of "Risk Factors" in the Hertz Global Holdings prospectus dated November 15, 2006 and the prospectus of the Hertz Corporation filed on December 6, 2006 could affect Hertz Global Holdings future results and could cause those outcomes to differ materially from those expressed or implied in Hertz Global Holdings' forward-looking statements.

With that being said, I'd like to turn the conference now over to Ms. Lauren Babus. Please go ahead.

Good morning. And welcome to Hertz Global Holdings fourth quarter and full year 2006 financial results conference call. Yesterday we issued our press release and associated financial information. In a minute, I'll turn the call over to Mark Frissora, Hertz' Chairman and CEO, and Paul Siracusa, our Chief Financial Officer.

Mark and Paul will take you through a detailed explanation of our performance. In addition, here today are Joe Nothwang, Executive Vice President and President, Vehicle Rental and Leasing, the Americas and Pacific. Michel Taride, Executive Vice President and President, Hertz Europe Limited, and Gerry Plescia, Executive Vice President and President of Hertz.

We'll take your questions during the second part of our call. The conference call operator will explain the process for asking a question at that time. Please note that our discussion today will include information on non-GAAP financial measures, all of which are reconciled with GAAP numbers, as shown in our press release attachment. The press release and the attachments are also posted on our website, Hertz.com/investor relations.

Prior year performance metrics are presented on a pro forma basis, giving effect to the company's new capital structure as if the debt associated with the acquisition of the company in December 2005 and related purchase accounting adjustments that occurred on January 1, 2005.

Pro forma metrics will not be required when we compare future results to 2006 performance. As a reminder, Hertz Global Holdings, a publicly traded company, is the entity on which we are reporting today. Except for auditing fees and interest expense related to the $1 billion loan used to pay a dividend in June 2006, the results for Hertz Global Holdings and for its wholly unsubsidiary, the Hertz Corporation, were identical in 2006. And now, I'll turn the call over to Mark Frissora.

Good morning everyone, and thanks for joining us. Since this is our first quarterly earnings report as a public company, let me start with some fourth quarter highlights. On a consolidated basis for the fourth quarter, Hertz generated total record revenues of $1.99 billion, a year-over-year increase of 8%. We achieved corporate EBITDA of $366.1 million, an increase over 2005 pro forma corporate EBITDA of 33.4%.

For the fourth quarter 2006, income before income taxes and minority interests, which we will refer to on this call as pretax income, was $42.7 million, compared to $7 million for pro forma 2005.

Our net income was $39.8, or $0.14 per share on a diluted basis, compared to a loss of $27.6 million, or $0.12 per share in the same quarter of 2005. The fully diluted weighted average number of shares outstanding for the fourth quarter was 281 million, compared to 229.5 million shares in the same period in 2005. Both of these earnings metrics were greatly improved versus the pro forma results. However, we want the investment community to focus on adjusted pretax income, adjusted net income, and adjusted earnings per share. We believe that these non-GAAP metrics better reflect our ongoing operating performance, and they are explained in greater detail in our press release.

Adjusted pretax income for the quarter was $132.5 million, more than double the pro forma adjusted pretax income of $54.7 million in 2005. Adjusted net income for the quarter was $81.7 million, or $0.25 per diluted share, compared to $32.4 million, or $0.10 per share in 2005, using the pro forma post-IPO share count of $324.8 million. This significant year-over-year improvement was driven by two full points of reduced direct operating expenses, higher pricing of 2.9% in the quarter, and improved fleet utilization.

All global operating units performed well. Just as encouraging was the cash performance. Our levered after-tax cash flow after fleet growth for both the quarter and full year 2006 was strong, and it enabled us to reduce net corporate debt by $388 million and $284 million, respectively.

For the fourth quarter comparison, drivers of this improvement were higher corporate EBITDA and reduced working capital requirements, which improved by over $300 million year-over-year. Now I'd like to give you an overview of the 2006 full year results, as well as our outlook and goals for 2007. Paul Siracusa will then provide more details on the fourth quarter financial results.

Hertz turned in a solid performance for 2006. Total revenues for 2006 were a record $8.1 billion, 7.9%, or $589 million above 2005 revenues. I'm very excited about Hertz's prospects for continued growth. We are well positioned in both the car rental business and the equipment rental business for further revenue expansion.

Looking forward, we will be diversifying further, both geographically and through increased penetration in various markets. Corporate EBITDA was $1.38 billion, an increase of 20,8%, compared to pro forma corporate EBITDA for 2005. As a percentage of revenues, corporate EBITDA represented 17.1% in 2006, an improvement of 183 basis points. At December 31st 2006, net corporate debt divided by corporate EBITDA was 3.3x, showing significant improvement over the 4.2x pro forma 2005 level. This was due to improved corporate EBITDA of $237 million, and a $284 million reduction in debt.

Pretax income of $200.6 million represented a 54.7% increase over 2005 pro forma. Our net income for the year was $115.9 million, or $0.48 per diluted share, using a fully diluted weighted average share count of $243.4 million. More importantly, adjusted net income for the full year was $299.7 million, a year-over-year increase of $97.2 million, or 48% from pro forma 2005. Adjusted EPS for 2006 were $0.92, increased from $0.62 for pro forma 2005, again using the pro forma post-IPO share count.

As of last night, the market value of our equity had increased 40.8% since our initial public offering on November 16.

From a macro environment standpoint, 2006 was a challenging year. Domestic employment growth, as reported by the Department of Transportation through November 2006, the latest currently available, was 0.7%, after having grown about 6% in each of 2005 and 2004. The Association of European Airlines reported strong full year 2006 growth of 5%. The Federal Aviation Association forecasts growth of about 3.7% in domestic employments, and about 5.4% in international employments in 2007. So the environment's a little brighter in '07.

Non-residential construction growth, as reported by F.W. Dodge, was 16.2% versus 2005, but starting to slow in the back half of 2006. Actual non-residential construction spending, which is measured by the Commerce Department, increased 13.3%, stronger than in prior years. The F.W. Dodge forecast for non-residential construction contract growth in 2007 is 4.1%, driven by manufacturing and institutional buildings.

Comparative growth in both our operating segments was impacted by the high level of hurricane-related rental activity in 2005. In the regions of the country that were not affected by the hurricanes, our total rental car revenue growth in the U.S. was about 300 basis points than 2005 in the fourth quarter, and 110 basis points higher for the full year. Nearly all U.S. car rental firms are experiencing significant car cost increases in the 2007 model year. We expect to mitigate these cost increases from about 17% to less than 6% by increasing the percentage of cars not subject to manufacturer repurchase plans or risk cars in the fleet, extending the average holding period, leveraging our diversified supplier base, and changing internal processes to improve vehicle utilization and lower unit costs.

Since fleet costs are roughly a third of total costs, we need to achieve a rental rate increase of about 2% to offset these costs. The recent and pending changes in ownership of certain competitors in both our industries will, we believe, lead to greater operating transparency and enhance interest within the investment community.

I'm going to switch now to Worldwide Rent-A-Car. Let me give you some details on our 2006 performance, starting with this segment. Revenue growth for the year was 5.5%, driven by a 1.1% increase of worldwide transaction days and a 2.7% rental revenue per day increase. In the United States, volume was 0.2% lower due to a tighter fleet during most of the second and third quarters, and rental rate revenue per day was 3.4% higher.

Internationally, transaction days grew by 4.3% and rental rate revenue per day increased 1%. Pricing improvement in both geographies was higher in the first half of the year than in the second half, and overall discretionary pricing improved more than commercial pricing. In most of our 2006 corporate account renewals, we achieved price increases of between 3 and 5%, averaging 3.8% for the year on a revenue weighted basis.

Our large customer corporate base is a loyal one, and we retain 99% of our corporate accounts and our commercial relationships are long-standing with many representing more than 22 years in service. In recent years, we have achieved a net increase in the number of accounts, with gains more than offsetting any losses we may experience. The important small business account sector of our corporate customer base experienced revenue growth of nearly 15% in 2006.

Our loyal customer base, discretionary and commercial, on airport and off airport, our number one club gold membership, the Hertz Collections, Prestige, Fun, and Green, our relationships within the travel industry, such as our new partnership with United, our multi-year extension with AAA, our European Alliance with Ryanair, all of these provide a strong foundation for car rental growth in 2007 and beyond.

Let's talk a little bit about the pricing environment now. The environment for price increases in the fourth quarter was generally robust. While Hertz initiated several of the rate increases, other firms also increased prices during the period, including several of the more price-oriented brands. As we cycle through 2007, prior year comparisons and changes in customer and channel mix will create disparities in comparing pricing performance across the industry.

The real measure of pricing will be seen in each company's profitability. Our U.S. airport market share for October 2006 with 92% of our airports reporting was 29.1%, a year-over-year increase of 0.3 point. This also represents a 9.8% point gap with the next largest competitive brand.

Also contributing to our performance is our increased penetration in the online booking segments in 2006. The momentum surrounding Hertz's presence is in the online environment, both Hertz.com and third party onlines, continues. And notably, the revenue from Hertz.com alone was in excess of $1 billion worldwide.

In 2006, approximately 32% of our worldwide reservations came through online channels. Neverlost and Sirius satellite radio continue to be popular add-ons to our customers. We just rolled out the latest version of Neverlost in Florida and California, with more local attractions and AAA data integrated with hotel and restaurant information.

For our visitors from abroad, Neverlost is now available in Korean, Mandarin, and Portuguese, as well as in the seven other languages that were previously available. Incidentally, Neverlost is now available at 240 locations in Europe, and our new DVD rental program is proving popular. In the U.S., Sirius radio is now standard with every front collection rental.

Move on now to fleet and utilization. In 2006, the average number of owned cars operated by Hertz worldwide was 438,100, about flat year-over-year, down 1.7% in the U.S., and up 3.1% internationally. Our 2006 overall fleet efficiency improved almost one full percentage point worldwide, with domestic operations showing more improvement than international.

We believe vehicle supply is more than adequate to support our growth. In the U.S., the percentage of programmed cars in the fleet dropped from 74% in the fourth quarter of 2005 to 52% in 2006, as we reduced the cost impact of the 2007 models.

Turn now to our off-airport segment. U.S. off-airport car rental revenues grew 4.9% for the year to $885 million, but growth was 9.7% during the first half of the year and 1.3% in the second, due to the strong hurricane impact in the Florida, Southwest, and Southeast regions in the second half of 2005.

During the fourth quarter we added 40 locations, bringing the total off-airport network to 1,380 corporate locations, and we expect to open at least 130 more in 2007 at a pace of approximately three per week. We continued to pursue insurance replacement business in 2006, and sign agreements with auto insurance companies to enhance our current preferred positions. Hertz is now an official supplier, either on a primary or secondary basis, in 91 of the 157 insurance accounts.

In addition, we are growing again in the dealer replacement market at higher rental rates after ending several unprofitable dealer relationships this past year. The faster paced location openings and increased penetration in the replacement accounts should result in a higher growth rate moving forward.

Furthermore, we are pleased to report that our off-airport operations are now a profitable part of the car rental segment on both an adjusted pretax and corporate EBITDA basis.

Let's move now to Worldwide HERC, our Hertz equipment rental business. When we talk about the worldwide equipment rental segment for the full year 2006, revenues grew 18.2% and same store revenue growth was 16.8% compared to 2005. The first half of the year had stronger year-over-year growth than the second half of the year, due to the slowing of non-residential construction activity in the U.S. in 2006, and the strong level of hurricane-related rental activity in that period in 2005.

Paul will discuss segments results shortly, but I want to point out that HERC maintained its strong profit trend despite the slowing of growth in the fourth quarter. Our business models diversified and focused on increasing penetration in general rental and specialty areas such as pumps and compressors, aerial equipment, power generation, and industrial-related rentals.

In addition, we drive more revenue per store than most of our competitors, which reduces overhead and other fixed costs. In the U.S. and Canada, over 75% of our rental revenues are generated from monthly and multi-monthly rental agreements. This contributes to the sustainability of our revenue base and profitability.

Although no single customer accounted for more than about 1% of sales, our national account base represented 46% of 2006 revenues. In 2006, we gained 40 new accounts in a variety of industries which are expected to generate between $45 and $50 million in incremental revenues per annum. Hertz' diversified customer base helps to reduce its cyclicality and exposure to slowing parts of the economy.

Full year rental and rental-related revenue, which is associated with the rental of equipment, including charges for delivery, loss damage waivers, and fueling, increased by 16.6%. The year-over-year pricing improvement was 3.3%.

Average worldwide rental equipment operated during the year on an acquisition cost basis was $3 billion, 16.6% higher than 2005. Overall fleet efficiency this past year, calculated by dividing HERC rental and rental related revenue by that average fleet level was 48.5%, unchanged from the prior year.

The HERC Network at December 31, 2006 consisted of 362 locations, 75% of the United States and Canada, and the remainder in France and Spain. In North America in 2006, we added 12 new locations, and in 2007, we expect to add another 15 to 20 locations to increase our geographical coverage and better meet the demand for specialized equipment.

Moving to the cost side of the business, I've already discussed the increase in car costs and how we are reducing the impact on profits. Our full year corporate EBITDA improved by $237 million for the year 2006. As a percentage of revenues, the margin was 17.1% of revenues, compared to 15.3% in 2005 on a pro forma basis. For worldwide car rental, corporate EBITDA increased by $75.9 million and the margin was 10.2%, compared to 9.5% pro forma 2005.

In worldwide equipment rental, the year-over-year corporate EBITDA increase was $172 million, and the margin was 45.4% versus 41.5 on a pro forma basis for 2005. Adjusted pretax income for the year was $486.7 million, or 6% of revenues. Broken down by segment, worldwide car rental consisted of $472.3 million, and worldwide equipment rental was $345.5 million, partially offset by an adjusted pretax loss of $331 million for corporate and other. The improvements in corporate EBITDA and pretax income were driven by reduced direct operating expenses as a percent of revenue.

Moving on to cash. Since the new capital structure was put in place in December 2005, our focus on cash flow has intensified, and we have set targets to improve working capital and reduce non-fleet capital spending. An important part of the strategy will be managing accounts receivables and accounts payable more effectively. For example, we've been negotiating more favorable payment terms with the OEMs in the equipment rental segment.

Let me give you now an update on some of the initiatives that we have previously announced. In September, we launched the Hertz Green Collection, providing customers the opportunity to reserve by make and model, fuel efficient, environmentally friendly cars such as the Toyota Camry, Ford Fusion, and Hyundai Sonata. In 2006, since its inception, Green rentals accounted for $113.7 million in revenues, and should generate between $350 and $370 million in 2007. We are excited about adding the Toyota Prius hybrid into this collection by June.

The Hertz improvement process is underway. This is a twofold approach, Six Sigma and Lean technology, which is based on the Toyota production system to improve efficiency and reduce costs. In addition to a pilot in Chicago, the program is now in place in Orlando, San Francisco, LAX, Heathrow, and several other major airports, and in the Hertz equipment rental operation in Houston.

During 2007, we expect to roll out the program to most of our larger operations. About 70 airport and equipment rental locations in North America and Australia, and 40 car rental locations in Europe. Our employees are enthusiastic and actively engaged in this process. For example, in Orlando, at [Kaison], which is a cross-functional process improvement team, was convened to improve the movement of vehicles within our facilities after they are returned by customers.

As a result of the workshop, the workflow was standardized and optimal traffic patterns were designed and implemented. The benefits of this are already evident. Cars are available to our customers faster, improving utilization, and fewer transporters and vans are needed. We project overall annualized savings of more than $350,000 in that single location.

In CMS, our contribution management system, the yield pricing and distribution models are now fully deployed in the United States, and work on the fleet management component is now underway. We have started to implement CMS in Canada and Europe as well, and they are on target to deploy all three modules by the middle of 2008.

I have spoken before about the potential benefit of centralizing the supply chain and implementing new procurement techniques. This has already begun and we are seeing good results. For example, using our reverse auction bidding technique for automotive filters, we will save nearly $.25 million per year starting in February of 2007. A significant amount of the cost savings can be attributed to our new supplier, providing some products from low cost country providers which meet OEM specifications.

As a result of moving toward more risk vehicles where we have greater flexibility sourcing parts, we successfully renegotiated the agreement with our automotive glass provider effective December 2006, enabling us to reduce our costs by 11%, with a projected estimated savings of nearly $500,000 annually. These may sound like small steps, but they do add up. We are both reducing costs and improving efficiency while maintaining the superior customer service that is our hallmark. We won 15 Best in Class awards in 2006, and hope to do even better in 2007.

On the labor front, we are evaluating our manpower costs and organization design, and have taken actions to streamline our operations and de-layer the organization. In the first quarter of 2007, we expect to have severance-related costs of about $14 million, and realized annualized savings of $140 million in wages and related expenses, as a result of the actions that have already been announced.

As focused as we are on cost control, we continue to invest in our business. For example, in the fourth quarter, we increased our media spend for television, print, and online advertising by $6.6 million versus the fourth quarter of 2005. And now let me turn the call over to Paul Siracusa for a review of the fourth quarter.

Thank you Mark, and good morning everyone. Total revenues for the quarter were $1.99 billion, a year-over-year increase of 8%. Worldwide car rental revenues increased by 7.3%, driven by a 1.9% increase in worldwide transaction days, and a 2.9% rental revenue per day increase for the impact of foreign exchange.

In the U.S., volume increased 0.7% year-over-year, and rental rate revenue per day was 3% higher than 2005, on top of a 4% increase the year before. Pricing of the leisure market was nominally stronger than in the business market, although both areas showed year-over-year improvement. Internationally, transaction days grew by 5%, and rental rate revenue per transaction day increased 2.8% overall, due to the stronger pricing environment in Europe in both the business and leisure markets.

In the worldwide equipment rental segment, total revenues grew by 10.6% in the fourth quarter from the prior year, and rental related revenue increased 10.1%. The pricing improvement was 1.8% versus 2005.

Same store growth was 8% year-over-year. As Mark mentioned, Hertz' revenue growth reflects the effects of considerable hurricane-related activity in the fourth quarter of 2005.

Turning to our results, consolidated fourth quarter pretax income was $42.7 million, an improvement of $35.7 million from the pro forma number for the same period in 2005. Adjusted fourth quarter pretax income on a consolidated basis was $132.5 million. By segment, worldwide car rentals generated $113.2 million in adjusted pretax income. Worldwide equipment rental, $100.5 million, and corporate and other recorded an adjusted pretax loss of $81.2 million.

Net income for the quarter was $39.8 million, compared to a net loss of $27.6 million pro forma for the same period in 2005. EPS for the fourth quarter were $0.14, using 281 million shares on a fully diluted weighted average basis. Adjusted net income for the fourth quarter was $81.7 million, or $0.25 per share on a diluted basis.

Corporate EBITDA $366.1 million, increased $91.6 million over the pro forma 2005 quarter. This consisted of car rentals contributing $157.5 and equipment rental [inaudible] of $211.7 million. The improved performance was due primarily to reduced direct operating expenses as a percentage of revenue in 2006 and very slight increase in depreciation expense, reflecting our move to more risk vehicles and strong markets for car sales residuals.

Let me also point out that we include any gain or loss on the sale of revenue earning equipment in the depreciation expense line. There's our policy to review quarterly the depreciation rates used for our revenue earning equipment, and make adjustments based on actual disposal experience as necessary.

Turning to fleet efficiency. In the fourth quarter, the average number of owned rental cars operated by Hertz worldwide was 427,700, an increase of 1.3% year-over-year, unchanged in the U.S. and up 3.9% internationally. Our overall fleet efficiency for 2006 increased slightly over the prior year in both domestic and international operations.

For HERC, average worldwide rental equipment operated during the quarter on an acquisition cost basis was $3.2 billion, 15.8% higher than the prior year. Overall, fleet efficiencies this past year, that is HERC rental and rental-related revenues divided by that average fleet level was 48.5%, a decline of 250 basis points year-over-year.

As the pace of revenue growth slowed in the fourth quarter, HERC had to right size its fleet, which would reduce utilization.

Debt and liquidity. On February 9, 2007, we amended the Hertz Corporation's term loan facility and the revolving asset-based loan facility, whereby our current pricing is now 25 basis points lower and the financial ratio requirement for specific pricing levels were revised. The revolving asset-based loan facility was increased by $200 million and extended one year, now maturing in February 2012, while we reduced the term loan by approximately $600 million.

Before fees, the savings in 2007 will be about $8 million. At year end, total debt outstanding was $12.3 billion, $7 billion of car rental fleet debt, $1.9 billion of debt secured by other assets, and $3.4 billion unsecured. Net corporate debt at December 31, 2006 was $4.5 billion.

Turning to debt compliance, we are very comfortable with our performance relative to our financial covenants. Under these tests at December 31, 2006, our consolidated leverage ratio was 3.5x, well below the maximum allowed of 6.25x and the consolidated interest coverage was 3.19x, well above the minimum allowed of 1.5x. The cushion we have under our tightest covenant for corporate EBITDA is $578 million. For indebtedness, the cushion is $3.6 billion, and for interest expense, $469 million.

At December 31, 2006, Hertz had $674.5 million of cash and equivalents, and restricted cash of $553 million. The amount of restricted cash associated with fleet debt was $487 million at year end 2006, and $191.5 million at year end 2005.

At year end 2006, subject to borrowing base availability, we had additional capacity of $4.5 billion, consisting of $2.8 billion in fleet financing and $1.7 billion in corporate financing, primarily under the senior asset based loan facility. We believe the liquidity is more than sufficient to support the ongoing growth of our businesses.

Turning to taxes, Hertz's effective income tax rate was -3.7% for the quarter, and 33.9% for the full year 2006. The fourth quarter negative tax rate is mainly attributable to a reduced tax contingency estimate and a decrease in our net deferred tax liability attributable to reductions in certain state and foreign income tax rates. For 2007, our projected effective tax rate is 35%.

Cash taxes were $17.1 million in the fourth quarter, and $33.6 million for the full year. We project cash income taxes for 2007 to be $50 million. We do not anticipate paying material U.S. federal income taxes until approximately 2011, because of the like kind exchange programs in place relating to our U.S. car rental and equipment rental fleets.

Capital spending. Net capital expenditures for property, plant, and equipment, that is investments in our facilities, systems, and service vehicles, were $26.5 million for the quarter, compared to $38.8 million in fourth quarter 2005.

Depreciation expense for non-fleet assets was $49.3 million in the fourth quarter 2006, and $45.6 million for the same period in 2005 on a pro forma basis.

On September 30, 2006 to December 31, 2006, the net book value for Hertz revenue earning equipment decreased by $84.2 million. In the fourth quarter HERC purchased $83.6 million of new revenue earning equipment and incurred $76.3 million of depreciation expense. Disposals totaled $91.5 million for the period.

From December 31, 2005 to December 31, 2006, net book value for HERC revenue earning equipment increased by $363.6 million. HERC purchased $875.2 million of new revenue earning equipment and incurred $277.6 million of depreciation expense. Disposals accounted for the remaining $234 million change in value.

As HERC ages is fleet, we can leverage our prior investment and revenue earning equipment, and accordingly, we expect fleet CapEx for 2007 will be lower than in recent years.

Turning to cash flow. On a consolidated basis, cash flows from operating activities were $411.7 million for the fourth quarter and $2.6 billion for the full year 2006, greatly improved over 2005 levels. Levered after-tax cash flow before fleet growth for the same periods was $150.5 and $430.9 million, respectively. After deducting car rental fleet growth equity and equipment rental fleet growth capital expenditures, levered after-tax cash flow after fleet growth was $388.3 million for the fourth quarter and $284.2 for the full year.

On this basis, compared to pro forma 2005, there was an improvement of $254.5 million for the fourth quarter and $733.9 million for the full year. The primary drivers of the strong cash flow in 2006 were increased corporate EBITDA, lower working capital and reduced net equity investment for the car rental fleet assets. The levered after-tax cash flow after fleet growth corresponds to the decrease in net corporate debt outstanding at year end 2006, excluding the financing that had been used to fund the dividend.

Turning to pension. Worldwide pension plans are adequately funded at 88% of the projected benefit obligation, or PBO. In the U.S., our main plan is funded at 92% of the PBO, and we do not expect to be required to make minimum contributions in the U.S. for the foreseeable future.

In 2006, our worldwide pension expense was approximately $35.6 million, which is a decrease of $1.9 million from 2005, primarily attributable to the elimination of the amortization of the net loss component of 2006 net periodic pension costs because of the purchase accounting changes that were recognized in 2005.

For the year-end December 31, 2006, we contributed 28.8 million to our worldwide pension plan, consisting of a contribution of 22.3 million to our U.K. defined benefit pension plan and benefit payments made to other non-qualified plans. And now I'll turn the call back to Mark.

Thanks, Paul. 2006 was a transitional year for Hertz. And in less than 12 months, Hertz went from being a subsidiary of Ford to one of the largest private equity buyouts in history, to being a public company. As these changes occurred, management was pulled in many directions, but kept their focus on operations.

Coming from Tenneco, I was eager to introduce process improvement and cost cutting techniques, and Hertz's management has embraced these new ideas. During the fourth quarter, we started to see the benefits of these innovations. The full potential will be realized as they are cascaded throughout the company and honed over time. We look forward to showing our progress to you through improved operating results.

I'd like to now transition to outlook and what we see in the future, and a little bit about our strategy. Our policy will be to provide full year guidance for revenue, corporate EBITDA, and adjusted net income and related EPS. It is important to note, though, that Hertz's businesses are seasonal, with the first quarter representing the lowest volume levels. Looking forward, we expect improved operating results in 2007 as we continue to focus on cost cutting, productivity improvements, and incremental revenue from our new growth agenda.

Our overall strategy is simple, to be the absolute lowest cost and highest quality provider of rental experiences to our customers. On the rental car side of the business, we believe by reducing our cost structure, it will enable us to take advantage of both the leisure market and one day and two day business rental.

Day in and day out, we turn down 5 to 10% revenue growth in one day and two day business rentals, which we do not make adequate contribution on today. As we develop our new cost structure, we believe we will properly fleet and make money in this business. Additionally, in the online leisure market, we choose not to participate in certain price segments. This will also change as we mature our restructuring initiatives. The organic revenue potential for these two areas alone is an opportunity of over $1.2 billion if we just get our normalized share.

On the HERC side of the business, organic growth opportunities are large for both geographic and product line development. Initiatives include market and product expansion for our industrial, aerial, and power generation. Our geographic growth focus will be on Asia, Europe, and certain underserved North America markets. Remember, the market for equipment rental is $30 billion plus, and Hertz did $1.7 billion in 2006. So the opportunities are significant. For both of our businesses, these strategies will unfold over the next 18 months.

For the full year 2007, we are forecasting total revenues of $8.5 billion to $8.6 billion, an increase of between 5 and 7%, and this range can be used for both car rental and equipment rental growth. Corporate EBITDA in the range of $1.54 billion to $1.57 billion, an increase of between 12% and 14%, and adjusted net income of $372 million to $395 million, an increase of between 24 to 32%, or $1.15 to $1.22 per share based on 324.8 million shares, the pro forma post IPO diluted number of shares outstanding.

And now we'll take your questions. Operator?

Certainly. Ladies and gentlemen, [OPERATOR INSTRUCTIONS] First, we'll go to the line of Jeff Kessler with Lehman Brothers. Please go ahead.

Thank you. And obviously, congratulations on a good quarter. You folks know this, that you had a good quarter, so that's why you held it until 10:45 last night. Clearly, the story here is not just revenue growth, but it's the cost savings and the margin improvement that you guys got out of auto rental in the fourth quarter. And clearly, that's coming from something.

And if you could be a little bit more specific as to where you're getting those cost savings and process savings from in the fourth quarter, and is that applicable to the same types of savings you intend to get from this business in 2007 and 2008? Because the numbers are potentially very large if you can get a lot of cost savings out of there, and those numbers have been floating around.

Jeff, it's Mark talking. Thanks for the compliment, and in terms of -- let's talk first about car costs in the rental car business. In the fourth quarter, we actually had a car cost increase. It was small, moderate, but it was about 0.3 to 0.4%. So we didn't get it from car costs, I'll just put it that way to you. We did have an attrition program in place. For every two people that left the company, one was replaced. And Jonah's team, I know, were able to take out close to 700 or 800 people in that regard. So we had labor costs that came out.

In addition to that, we did everything we could just in terms of overall operations. When we look at all of our salaried people in OKC and Oklahoma City as well as in Park Ridge, again, we had that same attrition program in place. For every two people that left the company, one was replaced so we could reengineer the work. And that helped us in the overhead area, SG&A area as well. But as you know, we'd spent more money in advertising than we did in the fourth quarter last year. We actually spent $6 million more.

We also had some Lean improvements that we were able to kind of model in Chicago and then replicate very rapidly around the other airport locations. We were able to get some transporter process improvements, where our transporters that actually take the vehicles and move them around different locations, they were able to show some improvement in productivity.

Overtime, controls were put in place. We were able to reduce our overtime due to just better planning from a logistics standpoint. And then, of course, supply chain initiatives yielded some improvements as well on a year-over-year basis, because we were doing reverse options in the fourth quarter, even at the end of the third quarter. So we were able to implement some pretty quick hits, if you will, from a supply chain standpoint or a procurement standpoint.

Okay. Now extrapolating that into 2007 and 2008, specifically, what other types of process and cost control improvements are you looking at?

Well, consistent with what I told you in the roadshow, or what I told investors in the roadshow, we believe Lean, on an ongoing basis, as we roll it out to 80% of our revenue base in the U.S., so we're going to roll it out in about 70 different airport locations in the U.S., and that's about 75% of our revenues. And then in Europe, we're going to roll it out in 40 locations, about 50% of the revenues there.

When you look at that, that can be a two point -- we say that Lean can take out two points of cost, including the Hertz equipment rental side of the business as well. That's two points of direct operating cost. And as Lean matures, and this could be a period of 18 months -- it's hard for me to give you a real -- anywhere from 18 months to two years.

In addition to that two points of cost take out, we have announced other restructuring initiatives that are yet to be finished. In the U.S., we'll be completed by the second quarter of this year, so there'll be further announcements in the U.S. on the layering and restructuring initiatives. And then in Europe, we have announced that we are restructuring Europe and we're moving from a footprint that essentially has about eight different country offices down to two regional centers. One for probably Northern Europe, one for Southern Europe.

And we have announced that we will take another $50 million of costs out of Europe by the fourth quarter, probably end of November, beginning of December, that that'll be completed. So that's an additional savings there that will again allow us to participate in other segments that we currently don't participate in.

Okay. Speaking of Europe just briefly, your numbers in Europe were actually a bit better than your competition, and I'm talking about the European competition over there. Is there some reason why you are doing well and others have had down years and have also been announcing fairly, let's just call mundane or even downer types of projections for 2007?

Well, I'll just say in general, yes, we are significantly better than our competition over there, in terms of our margins and numbers. And I would tell you that we're gaining momentum, I'll put it that way to you as well. And I guess Ryanair has been a key travel partner for us, as you know. They're redefining, if you will, air travel in Europe.

They're going around major airports into minor airports, and actually developing a whole segment, a leisure segment of traveler that used to travel on the weekends via car, and now they're traveling via airplane because the rates are so low. Ryanair's model is extremely aggressive. I got a change to meet with the CEO of Ryanair last time I was in Europe. And Michel, who is on the call, is doing a lot of other things there. And Michel, maybe you can characterize some of the differences between the competition and us.

Yes, I can. I guess you're referring to Avis Europe, but I think that's --

Well, there are others as well who are not doing as well as you. Avis Europe is the obvious one, because they've announced it. But there is -- you still are doing better than your other competition.

That's correct. We do regular comparisons, as you might expect. In a nutshell, we are growing faster, certainly compared with Avis Europe. One key difference is our pricing. I mean, talking there, about Avis Europe, their pricing was negative, ours was positive, as both Mark and Paul mentioned.

And I think this is because we have [imparted] a different growth strategy a couple of years ago, going away from some low cost, or low priced intermediaries to focus on partnership segments such as Ryanair. On our retail segments, our web bookings and our web business is growing very nicely, and it is a segment where we're controlling the price.

In addition to that, the cost initiative that Mark talked about, such as our restructuring or Lean, or improving our [set] utilization, these kind of things are paying off, and I think that the key difference is we've got also a stable management team here, and like some of our competitors, and I think we just have a sound commercial strategy, that to me, that's the key. Being clear where we can grow profitably and not, and continue to focus on cost. That's what I would say, generally, are the key things.

Okay, just quickly to get --

Jeff, I think we have to go on to the next person, if you want to get back in the queue.

Oh, Lauren, okay.

And next we'll go to Chris Agnew with Goldman Sachs. Please go ahead.

Thanks. Good morning. First question on HERC. You seem to have lowered your growth estimates for this business. And basically I just wanted to know, or ask, what of the margin has caused you to become more cautious? And maybe as a follow-on, do you plan to slow your CapEx plans going forward? I know it's going to be lower than it has been historically. But are you slowing it versus what you were expecting earlier in the year? And maybe can you provide an estimate for your HERC CapEx in 2007?

Well, let me see if I can clarify that a little bit, and I'll turn it over to Gerry. But in general, our growth rate is probably close to double any of our competitors. And I mean, in general, I don't think our growth rate is slow compared to the competitive environment or what we see in the industry, it's typically a lot faster.

But in terms of the actual forecast, yes, it slowed, but it's relative to the industry and what you see in the industry turn down. So as you know, 48% of our revenues are tied to non-residential construction and it's no surprise, this has slowed down since we went out on the road in November. So with that, I'm going to turn it over to Gerry to talk about any of the spending on CapEx, both non-fleet and fleet, as well as the growth rate. Gerry?

Sure. Mark, in fourth quarter of '06 we had double-digit growth, and as Mark mentioned, that was better than most of our larger competitors. And a lot of that is our business initiatives as we penetrate the industrial and other markets. As we look ahead into '07, the same thing occurs. Dodge is forecasting about 4% in non-rev spending, we're looking at significantly higher than that, and still greater than the industry. And again, reflecting our penetration of some of the non-construction related industries like industrial, aerial, power generation. So we continue to outperform that. And that's about where we expected the year to roll.

And having said that, our CapEx spending will be a little bit lower. As we age the fleet several months, we have a very new fleet, made significant investments over the last couple of years. There's an opportunity to age the fleet and then still grow the business in close to just under double digit, high single digit levels, and really pushed by the diversity of our business.

Okay thanks. And next question, if I could shift to [RAC] and maybe off-airport investment. It seems to me that you've maybe accelerated plans for new store openings. First of all, is that correct? And secondly, when do you estimate that this business can achieve the same level of profitability as on-airport? Is it a two to three year target, or is it longer-term, sort of five year target? Thanks.

Okay, good. Thank you. I guess just in general, yes we have accelerated our new store growth. As I mentioned, we opened up 40 new stores in the fourth quarter, and then we're announcing plans for at least another 130 this year. So yes, we're accelerating our plans for off-airport.

And as you noticed, we also gained significant new accounts, I mentioned 91 accounts of the 157 that we've now penetrated. And what's happened is that we've really consolidated in 2006 the model that we wanted going forward. We figured out how to make money, in a way, and then grow that model going forward to 2007, 2008.

In terms of when we expect to get the same profitability in this business segment as we have in on-airport, that would be like a crystal ball. But it's certainly going to be by 2009, 2010 timeframe. And then Joe, I'll just turn it over to Joe Nothwang. Joe, are there any other comments or color you want to add, in terms of our off-airport strategy?

Yes. I think the key is we still see the tremendous growth opportunity, and we're reaccelerating the location counts as Mark just mentioned. We have a lot of upside, there's rational pricing and a large insurance [bit]. And the lower cost structure will enable us to compete in a lot of different segments that we have avoided, both on and off-airport.

Okay, great. Next question?

And that's from [Christina Wu] with Morgan Stanley. Please go ahead.

Thanks. I was hoping that you could comment about your corporate EBITDA guidance. I know that you add back things like non-cash expenses and extraordinary items. I was wondering what your assumptions are to get to the corporate EBITDA guidance you've given for 2007. And specifically, if it includes any add-back for equity compensation?

Well, the assumptions are consistent, and the answer to the equity compensation issue is no. But let me let Paul Siracusa kind of talk about any of the assumptions or Rich Foti, either one of you guys. You guys want to talk about the assumptions built into it, but they haven't changed, they're consistent.

Yes, the assumptions for '06 are consistent. '07 is going to be consistent with '06, so we're really not going to be changing the formula. It's basically excluding purchase accounting and non-debt, non-cash charges.

Next question is related to pricing. You commented about some of the mix shift, and that it's difficult to compare Hertz's pricing versus the competitor's. I was hoping to get a little bit more color there, given that the pricing you were able to achieve during the fourth quarter seemed to be a little bit less than the competitive pricing.

Okay. Generally speaking, I guess we always lead price increases 99% of the time, or maybe it's 95% of the time. So just in general, in terms of pricing, we are the price leader recognized by most industry standards. The issue comes down to timing, and what happens oftentimes is certain people will lead price and other people don't.

The bottom line is, we have a mix of business, it's a little different than some of our competitors. There may be some competitors that are more heavily leisure segment oriented, and those that have a higher leisure segment have the advantage of being to get more price, typically, than in a corporate segment. 50% of our business is corporate pricing. We renegotiate those contracts every year, and we mentioned to you that we got fairly robust pricing in that segment, I think around 3.8% was the average.

But at the same time, in the leisure segment, you could pull 7 or 8% in a given quarter, and you could do it much quicker in the leisure segment. So those competitors that have a higher percent of their overall business and leisure, and many of the price oriented competitors that participate in the price segment, they have a higher mix of leisure business, typically 70 to 80%. They're able to get a higher pricing mix quickly than, let's say, Hertz, who has a more balanced structure of customers.

So if you were able to get around 3.6, 3.8% pricing on the corporate side and leisure's a little bit higher, why is it that you came in at 2.9% overall during the fourth quarter?

There are a couple reasons that you need to understand. Again, off-airport versus on-airport. If we grow off-airport as a percent of our mix, that segment also doesn't grow at the same rate, it affects what's called our revenue per day. We have roughly $850 million of revenue in that segment. That segment also does not give the same kind of pricing growth that you may get in the corporate or in the leisure segment.

You'll notice that a lot of our competitors don't have any off-airport business. Enterprise, which does not report, but others that do report, you'll notice that again, off-airport's not a big percent. Other than Avis, Budget, it's just Avis, Budget, and ourselves [where they] compete in what's called the off-airport segment. That mix is another issue.

Okay, great. Thanks so much.

We'll next go to the line of Himanshu Patel with JP Morgan. Please go ahead.

Hi. This is actually Ranjeet Unnithan for Himanshu. I actually wanted to get a little deeper into the cost actions that you've announced and just put them in context. So for example, you announced, you said on the call that you expect further restructuring initiatives in the U.S. that will be done by the second quarter. Is this sort of in addition to the head count actions that you've announced earlier in the quarter, or are you --

That's correct, that's correct. They're in addition to.

Okay. So you're basically saying that there could be more head count related actions, or is this more process and other purchasing [related]?

It will be both, but yes. There will be more head count, and there will be others as well. Other what we call productivity improvements that will happen through Lean.

Okay. And Lean, you said it could help take out two points of direct operating expense, or that translates into just about $160, $170 million on an annualized basis. All the actions you've announced so far, how far along do you think you are in reaching that point, and how much is the opportunity left?

First of all, Lean is a journey of continuous improvement, which means it never stops. So I'm telling you two points could occur over the next 18 months to two years, but understand that the journey never stops. Every year, for example, the previous company I used to work for, we'd take out $140, $150 million of cost every year due to Lean initiatives.

So this is a continuous cost reduction program, and I'm trying to size for you the opportunity over the midterm, which is over the next 18 months to two years, we think we can take out two points due to the Lean initiatives.

Okay. If I could just move on quickly. Can you just comment on pricing at that unit, given that overall revenues seem to be slowing down a little?

Yes. I guess I'm going to turn it over to Gerry Plescia to talk about the pricing environment and the equipment rental side.

As pricing has trended a little bit lower over the back half of 2006, and really, we're seeing low single-digit pricing improvement as we reported, essentially it's after two to three years of pretty strong pricing growth and then a little bit of slowing right now on the residential and construction sectors.

So there's some situation where there's additional earth moving capacity in the market, and that's really causing some of the pricing pressure. But we're still seeing positive pricing in the low single digit range to carry right through the fourth quarter. But at a more moderating pace than the strong growth in the industry the last couple of years.

And current expectations at that level could continue through '07?

Low single -- yes. We're not looking at significant changes in that pattern.

Okay. Thank you.

Thanks. Next caller?

And that's David [Linn] with Wachovia. Please go ahead.

Hi, thanks. Just had a couple quick questions. When it comes to your revenue guidance, did you mention it was 5 to 7% apiece for RAC and HERC, or did I mishear you on that one?

That's accurate.

Okay. And if you could just comment on your gross margin outlook for '07 as it relates to overall, that would be great.

I mean, the guidance that we've given you includes, obviously, EBITDA growth and margins associated with that. So I don't know -- we're not going to be giving any other color, if you will, on any other kind of margin, whether it's contribution margins, gross margins, et cetera. Maybe, can you clarify your question a little bit?

Yes, I was just trying to -- I know that you gave sort of like a corporate EBITDA kind of look. I was trying to sort of work my way back into a gross margin, but I think the corporate EBITDA is probably it, I can work with that, then.

Okay.

Thank you very much.

And we'll next go to Brandt Sakakeeny with Deutsch Bank. Please go ahead.

Thanks. Let's see. Mark, I thought I heard you say earlier a figure that excluded some of the hurricane affected regions for the RAC business. Do you have that figure for the HERC business as well?

No. We actually, I don't believe we gave that figure. We didn't adjust out, if you will, our southeast, southwest regions and calculate what would have been the growth if it wasn't for the impact of the hurricane. But believe me, it is a significant number. I mean, our actual growth in both HERC equipment rental as well as in our off-airport segment would have been much larger if it wasn't for effect of the hurricanes in 2005. I don't know, do we have any --

We did for RAC.

Okay. For RAC, let me see if I can't pull for you the number here real quick. You were looking for RAC and HERC, is that right?

Actually, principally, HERC. But if you have RAC, we'll take that as well.

Well, let's see. Gerry, do you have HERC?

Sure. In the fourth quarter of '05, and which trickled into '06. So it increased overall, affected about 4 to 5% in total revenue improvement related to that activity from the Gulf Coast through Florida, across three hurricanes.

So that was the hill we had to climb going into the fourth quarter of this year, approximately, and we really retained about 70 to 80% of that level of business. So really, without that, we would have had an additional 1 to 2% growth weeding that all out, comparatively in the fourth quarter.

Okay, great. And so would the expectation be as you anniversary that and proceed to the back half, that you ought to see pretty decent acceleration in top line growth?

Yes. Gerry, you want to comment on that?

In our perspective, yes. The first quarter of '07 is, again, the hurricane activity continued pretty heavily through the first quarter of '06, so comparatives were definitely still difficult as they were in the fourth quarter of '06. And it starts to subside a little bit as you get into the back half of the year. But again, we retained some of the industrial aspects of that business, we did retain a portion of that, and that's ongoing.

Okay, great. And then, just to clarify the question earlier on equipment acquisition costs for '07. Did you say they would be down in absolute dollars relative to '06?

Yes. In absolute dollars, we're looking at several hundred million dollars less than '06.

Perfect. Great. That's all I have.

Thank you.

Our next question's from Jordan Hymowitz from Philadelphia Financial. Please go ahead.

Hey guys and Lauren. It's great to hear you on these calls again. I have a couple questions. Mark, can you just break out in percentage terms the price increases from corporate, leisure, and off-airport, year-over-year?

No, I'm sorry, we don't have that data.

Jordan, we're not going to be that distinctive about it. We gave you the commercial and you have domestic and international and worldwide.

Well, you said leisure was a little better than corporate, which was 3.8. Can you say what leisure was?

Why don't we talk about this later with the math, but you ought to be able to get something close to it. But we're not going to break down piece by piece.

Okay. And the other thing is, in the leisure -- in the airport, what percent of your total businesses [in] that represent?

Again, about $840 million. I guess we can do the math on that, it's about 10% roughly. I think we did $8.1 billion in 2006, so 25% of the U.S. piece.

That's what I'm trying to get. 25% of the U.S.?

Yes. 25% of the U.S.

Okay. Thank you very much.

Thank you.

And next we have Clark Orsky with KDP Investment Advisors. Please go ahead.

Yes, just for '07, I'm wondering what your debt reduction targets are, or leverage targets for the end of the year?

I guess in terms of actual targets, we don't have them. We haven't set them out on the call, I guess. It's something that, in terms of where we're looking to go long-term, I know we want to get to 2.0 debt to EBITDA ratio and that we expect it to get there within two to three years. That's our overall goal at this point. I believe we finished -- go ahead Paul, what were you going to say?

I was just going to say our target was to be leveraged by about $1 billion over the next two to three years.

So I guess we'd probably be closer to two now, since the last time we said that was probably in the fourth quarter. So within a couple years we think we can deliver about another $1 billion off the balance sheet.

Okay, and that's corporate EBITDA?

Corporate debt.

Right. Thank you.

And next, we'll go to James Solomon with JP Morgan. Please go ahead.

My question's around the car rental business in Europe, actually. A couple of questions. One, how does Hertz see the outlook for the European market? Is it improving from your point of view? As mentioned earlier, some other companies have a downbeat outlook on that. And specifically on the pricing, I wonder what the full year result was for Hertz in Europe? I know [H1], you said you had increases and then Q3 was flat. In terms of the fleet cost increases you're seeing of 10% in Europe for '07, is that a potential catalyst for prices to raise?

And is there a reason why Hertz is seeing plus 10%, where Avis Europe, for example, says they're just going to see plus 4%? Can you offset that in similar ways as you're planning to do in the U.S.? And just finally, then, Avis Europe actually said that it increased prices across the board for January or February on its website, by 10 to 20%. But none of its competitors followed. I wondered if you guys actually noticed that in the market? How did you react?

Okay. You've asked a lot of questions. Let me see if I can chunk through a couple of them and I'll let Michel add some commentary. First of all, we will not comment on pricing as it relates to our competitors and whether or not they received 10% or we didn't. I mean, we don't talk about that, all right? That's obviously an antitrust issue for us here. So I want to be clear on pricing.

In terms of volume, overall revenues, we feel pretty good about the marketplace. Again, it's tied to the fact that we think we have the best travel partners in the business, and those relationships we're growing with them, and the fact that the airline travel industry in general in Europe is fairly robust. Employments, as you know, are higher in Europe than what they are in the U.S. They were forecasted, I think, to be around 5.5% roughly, in Europe.

So the whole issue of airline travel there is -- that's why we're a little bit more positive, I think. Because we are tied to some very good travel partners. So yes, we're a little more bullish on that. In terms of just our pricing strategy, I'm going to let Michel talk about that, but in context and comparison to anyone else, we will not comment. But go ahead, Michel.

In terms of our pricing, your question was about fleet cost increase and would that be a catalyst for a price increase? We believe so, certainly, and we see an improved trend already at the back end of '06, an improved trend from second quarter otherwise, right now. That's what we see. So yes, technically, fleet costs are a catalyst. I think that is [the choice] for everybody right now.

In terms of what our fleet costs will be, we mentioned 10%. When we say 10%, we mention about the model year. So if you take a 2777 model year car, on average, the fleet cost increase would be 10%. We need to [gage] that from several ways. One, because the fleet, you say it [in] if you like, in terms of additions. That's number one. Second, we have a number of initiatives to mitigate those fleet cost increase, like increased [inaudible], improved fleet mix, working on our cut costs, improving residual values of our use cost as well, by diversified channels, these kind of things which we hope will enable us to mitigate substantially off these cost increase [inaudible]. But that's the environment here in Europe. Like in the U.S., fleet costs are increasing.

Just in terms of what you saw actually full year '06 on pricing in Europe, was than an increase?

Yes, it was an increase. It was an increase of precisely our revenue per day increased by 2.5%.

Okay. Thanks a lot.

We have time for two more questions.

And we'll go to Douglas Carson with Bank of America. Please go ahead.

Great, guys. A quick question on the age of the fleet. If you can give some more color on the age of the domestic fleet, I think you had 290,000 units domestically and you indicated the fleet was on a relative basis fairly young, given the investment. I'm trying to handicap on how much we could age this fleet, kind of to bring it to the midline age.

Okay, now. I thought you were going for -- you want the equipment rental side of the business, that's what you're asking about the age in the fleet, right?

Yes.

Okay. On the equipment rental side of the business, I'll turn that question over to Gerry.

Okay. Our fleet age right now is very young compared to the industry, at about 26 months. All these actions we're talking about really only move us several months toward the middle range. So the end of '07, even with the actions we spoke about, maybe a two month aging to that fleet.

Whereas we think we'd be very comfortable in the low to mid 30s in a range. So it's going to take several years to get there, so we have an opportunity to keep moving in that direction and getting some good cash flow benefits out of that exercise.

So we can move in a few months and we'd still be kind of in the midrange.

We'll be below the midrange, really, in the next one to two years, actually.

And then separately on the working capital, it looked like you got better payment terms from OEMs to help support some of the working capital. What's driving the better payment terms? Because certainly, OEMs AR not doing so well, and I'm wondering why they would be offering better payment terms?

Well, I mean, you know, we're just great negotiators. What can I say?

[Inaudible] buying that? Is it some of the pricing environment or...

Well, we try to work things out creatively, where we can't comment on our confidential relationships with the OEMs, but there are ways of making win/win solutions happen. So it could be a discount here or there, or it could be just the way we do the dating, it could be the way we turn the car back in. I mean, there's a variety of ways of working out arrangements. You just have to focus on it. And we've been focusing on that now pretty solidly over the last five months.

All right, good. Thank you.

Our final questions are from Jeff Kessler with Lehman Brothers. Please go ahead.

Thanks for letting me back in the queue. One final question on your price negotiations with your OEMs going into 2008. It seems that you've had two years in a row now of fairly hefty depreciation increases. The OEMs have gotten themselves up to a point at which they're pretty close to profitability on their program cars.

They also don't want to cross the line and throw you folks too far over into the arms of European, and more importantly, Asian producers when they are willing to give you cars. Do you think that the negotiations for 2008 model year is going to be a little bit easier in terms of the, let's call it the fleet cost outlook particularly on the program side, but partially, also, on the at-risk side, as again, we talk about the 2008 model year?

I guess, Jeff, the best way to characterize this is it's still early, but we're thinking probably 6% is what we'll see as the overall increase versus last year of 17%, the year before that 15%. So yes, we think the environment will be a little friendlier this year. Still, though, healthy at 6%.

And you're talking specifically about program, or is this blended?

This is a blended rate for program and risk for 2008 model year.

All right. Great. Thank you very much.

And Mr. Frissora, I'll turn it back to you for any closing comments.

Okay. Well, thank you all for joining us today, we appreciate your support and we look forward to our next call when we will update you on our first quarter.

Ladies and gentlemen, this conference is available for replay, it starts today at 4:15 p.m. Eastern Time, will last until March 20 at midnight. You may access the replay at any time by dialing 1-800-475-6701. International parties please dial 320-365-3844. The access code is 858640. Those numbers again, 1-800-475-6701, or 320-365-3844. the access code, 858640. That does conclude your conference for today. Thank you for your participation, you may now disconnect.